8 be allowed to continue until we are able to provide both sufficient incentives for the public to accept them and equal incentives for banks to offer them. The net effect of this bill would be to stifle these services because of fears which anticipate abuse of the consumer. The best interests of banking are in serving the consumer, not in abusing him. Additionally, this legislation does not yet take full advantage of a significant resource: the final report of the National Commission on Electronic Fund Transfers. This Commission was established by the Congress and began its work almost two years ago. It was charged by the Congress to: "Conduct a thorough study and investigation and recommend appropriate administrative action and legislation necessary in connection with the possible development of public or private electronic fund transfer systems, taking into account, among other things - the need to afford maximum user and consumer convenience; the need to afford maximum user and consumer rights to privacy and confidentiality; the need to protect the legal rights of users and consumers. Clearly then, the Commission's responsibilities include recommending legislation to safeguard the consumer. The Commission, composed of 26 individuals drawn from many sectors of our society, is currently concluding its work. of which are in the consumer area, will be finalized within the next few weeks. The Commission's recommendations in the consumer area are based on extensive examination and discussion. I have worked closely with the Commission as a representative of the banking industry. I can attest to the detailed probing the Commission used in weighing consumer issues. The rationale for each of the consumer recommendations, including the pros and cons, are being documented now, and merit your review. At this time, these recommendations are in substantial disagreement with many of the provisions of S.2065. Major areas of departure include the critical issues of liability, stop payment, error correction, individual notifications, and descriptive statements. These recommendations deserve and we are certain will receive, in-depth review by the Subcommittee and the Congress prior to legislative action. Mr. Chairman and members of the Subcommittee, I thank you for the opportunity to have appeared before you on behalf of America's banks. We share with you a strong-felt desire to ensure that the rights of our customers are adequately protected. We do not, however, agree the restrictions proposed in S. 2065 will accomplish this goal but do recognize the value of the bill as a step in the process necessary to safeguard the adequately consuming public, and the banks. Senator RIEGLE. Thank you, Mr. Tangney. Before calling on Mr. Koehn, I want to make one observation that relates to a comment you just made. The National Commission in their interim report in February, as you know, called on the Congress to go to work immediately in this area. They didn't ask us to wait; their pointed suggestion to us was that the need for congressional initiative was an immediate one. Second, their recommendations, which are due out in about 3 weeks or so, are already being circulated as you probably know. They are out and you have access to them and we do as well, and so it's not as if they were some unknown set of thoughts. They are on the table and we are all familiar with them. Mr. TANGNEY. I agree, Senator. I think, though, if my recollection is correct, we asked the Congress to begin in certain areas, for instance national banks today because of the growth of the VISA here in Washington cannot enjoy the benefits that are given to State banks because of the ruling on branches. I think that was one area where we suggested the Congress immediately give relief for that. Senator RIEGLE. That's a separate issue and that isn't touched on in our bill because that falls into the jurisdiction of a different committee. Before we open it up for questions, let me go to Mr. Koehn. Mr. Koehn, you have the lengthiest presentation of all here, which we welcome and appreciate, but if you can, I would appreciate it if you would summarize as much as possible. We will make your statement in its entirety a part of the record, as we do in the case of all witnesses, so if you can highlight as much as possible that will help us and also make sure that we will have a chance to get to our second panel. Mr. KOEHN. Thank you, Mr. Chairman. STATEMENT OF HANK KOEHN, VICE PRESIDENT, REGARDING S. 2065, THE ELECTRONIC FUND TRANSFER CONSUMER PROTECTION ACT Introduction Electronic Funds Transfer (EFT) does not symbolize a revolution in financial services but rather a technological evolution which offers the potential for significantly improving the payments system which has developed in the United States. Our current payments system is dominated by the use of checks, cash and credit cards, and is generally satisfactory to consumers and the private and public sectors because to a large extent it is reliable, well understood and well accepted in the market place. However, the system is not perfect and there are various factors motivating its improvement. For example, the volume of check transactions has been growing at an annual rate of 7% and there are many concerns that the check-clearing system may be unable to accommodate increasing volumes either efficiently or at a reasonable per transaction cost. The growing vulnerability of consumers and retailers to cash theft or robbery is making cash transactions less desirable. Moreover, financial institutions which compete intensely with one another for the deposits of and other financial relationships with consumers and business view EFT as an opportunity to develop more convenient and less costly financial services which in turn will increase their competitive stature. Also, the financial arms of the federal government have perceived the cost savings and efficiencies afforded by EFT. It must be emphasized that the advent of EFT is not expected to make our society checkless or cashless. It is hoped, however, the EFT will permit the increasing check volume to level off in the 1980's in order for the check-clearing system to remain efficient and inexpensive. This development, of course, is dependent on consumer acceptance of EFT as a payment method to be used in addition to checks, cash and credit cards. Consumer Liability Before commenting specifically on the loss allocation policy proposed by S. 2065, we wish to express our views on what the goals and structure of an optimal loss allocation policy should be. In this regard two basic assumptions are made: (1) that losses in a payment system are undesirable because they increase its aggregate social cost and (2) that a loss allocation policy should be designed to efficiently minimize the occurrence of such losses. The devlopment of a loss allocation policy requires an examination of the nature and causes of losses which can occur and an identification of the person or persons acting within the system who control or |